The 2013 WTO Bali Ministerial: Prospects and New Horizons

On December 3, trade ministers from members of the World Trade Organization (WTO) will begin three days of meetings in Bali, Indonesia for the ninth WTO Ministerial Conference—the fifth Ministerial Conference since the launch of the Doha Round of trade negotiation in 2001. And yet, concluding the Doha Round is not a goal of this Meeting. Instead, the aim is to finalize some key elements of the Round. A successful outcome at Bali, while short of the full Doha Round, will give the WTO a needed boost of confidence. As U.S. Trade Representative Michael Froman recently observed, “in the WTO’s record: in its nearly twenty-year history, the WTO has never once produced a new, fully multilateral trade agreement.”[1] A successful outcome at Bali will also raise the question of what is next for the Doha Round—whether to conclude the outstanding issues on the Doha Round, introduce new trade issues for negotiation or accept a period of stasis as countries seek to conclude mega-regional free trade agreements (FTAs) such as the Trans Pacific Partnership (TPP) negotiations and the Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations.

The WTO Bali Package

The elements of the Doha Round that are likely to be finalized at the WTO Ministerial in Bali are trade facilitation, agriculture and duty-free quota-free market access for the least developed countries (LDCs). The United States has made clear that these issues need to be considered as a package, so failure to agree on any one issue will likely lead to failure on all three issues.[2] While not formally part of the Doha Round there are also other issues on the agenda for the meeting, the most important of these being expansion of the WTO International Technology Agreement (ITA).

An agreement on trade facilitation will produce the most significant economic benefits for all WTO members. According to one report, the gains from an ambitious outcome on trade facilitation could increase global gross domestic product (GDP) by close to $1 trillion annually with the majority of gains going to developing countries.[3] Such an agreement would improve the efficiency and reduce the costs of moving goods through customs by adopting measures such as digitizing customs procedures and greater transparency. Success here is likely, as in addition to the economic gains there are no significant domestic losers from trade facilitation, which should make the domestic politics for each country easier to manage. That said, some countries are still insisting on being “paid” for trade facilitation. And special and differential treatment will need to be extended to developing countries to address concerns that they do not possess the technical capacity to implement customs reforms.

Negotiations on agriculture are also progressing. This includes new disciplines on export subsidies and tariff rate quotas for agriculture. Food export control is another issue under discussion. Here, the rising food prices from 2006 to 2008 and the use of export controls by some countries in response exacerbated the global under-supply of agricultural products, contributing to increasing global food prices and highlighting the need for a multilateral solution to this issue.[4]

The third leg of a Bali package—duty-free quota-free trade for least developed countries—should be the easiest. Many developed countries including the United States and the European Union already provide tariff preferences for imports from LDCs under legislation such as the Africa Growth and Opportunity Act in the U.S. and Everything But Arms in the EU. Emerging countries such as India and China are also expanding preferential access for LDCs. However, some of these programs do not cover all LDC exports or are limited by restrictive rules of origin, so reform of these programs will be necessary.

A successful outcome in Bali will inject some credibility back into the WTO as a trade negotiating forum. The failure to conclude the Doha Round after 12 years has led many to question the future of multilateral trade rounds. Agreement at Bali will also underpin continuing political support for the WTO more broadly including its dispute settlement mechanism.

Yet a successful outcome in Bali will immediately raise the question of what is next for the WTO. In this regard it is important to note that finalizing some parts of the Doha Round will break with the single undertaking—the notion that the entire Doha Round needs to be agreed as a package. This should open the way for finalizing other parts of the Doha Round.

One way forward is to channel any new momentum created by a successful Bali outcome into concluding other elements of the Doha Round. For instance, WTO members could try to liberalize trade in environmental goods and services. President Obama has made this a priority[5] and the 2012 Asia Pacific Economic Cooperation (APEC) agreement to reduce tariffs on a defined list of environmental goods provides a platform for building on work underway in the WTO on this issue.

Author

That said, in order for further progress in the Doha Round a number of key stumbling blocks need to be overcome. The first of these is the impact on the WTO negotiating dynamics of the growing economic significance of emerging economies such as India, Brazil and China in particular. As former U.S. Trade Representative Susan Schwab (who served from 2006 to 2009) has observed, the failure of the Doha negotiations to reflect these new economic realities has been a key reason behind the inability to conclude the Doha Round.[6] The WTO allows countries to self-identify as either developed or developing and the latter are not expected to make market access commitments equivalent to developed countries and are given more time to implement whatever trade liberalizations to which they agree. China and other large emerging economies have insisted they be treated as developing countries in the Doha Round while the U.S. and other developed countries see large emerging economies as important sources of global growth and world trade that should make commitments in the Round commensurate with their economic size. The low ambition that China has brought to the ITA negotiations this year and resistance by India to an ambitious outcome in Bali suggests that these large emerging economies remain unwilling to contribute more to shepherding Doha to a successful conclusion.

A second obstacle is the impact of what Brazil has referred to as the “misalignment of exchange rates” on world trade, which will need to be addressed before Doha can successfully be concluded.[7] Here, the undervaluation of the Chinese yuan caused by its peg to the U.S. dollar has exacerbated the competitive pressures faced by industries in developed and developing countries from Chinese imports and heightened concerns about the impacts of lower tariffs being pursued under the Doha Round. Moreover, support by the U.S. Congress of including currency provisions in the TPP negotiations could presage a U.S. focus on this issue in the WTO context.[8]

Another issue likely to complicate further progress in the Doha Round is the Trade in Services Agreement (TISA) negotiations. TISA is being negotiated amongst a self-selected group of WTO members who are more ambitious on services than the rest of the WTO. This means that services liberalization is more likely under TISA than as part of the Round. However, because an outcome on services is the main area of the Doha Round that could produce outcomes of commercial significance for U.S. and other developed countries’ businesses, progress on services in Doha is key. And while TISA is not intended to replace services negotiations in the WTO, the ability to make progress on services in TISA will likely make the Doha round even less relevant for the business community, where business enthusiasm for past rounds was a necessary ingredient for their successful conclusion.

Failure to address these issues will make further significant progress on the Doha Round difficult, notwithstanding a successful outcome in Bali. An important wild card is what impact other large bilateral and regional FTAs such as TPP and TTIP are having on the Doha dynamics. A successful outcome in Bali might in part reflect a growing realization amongst the broader WTO membership that a failure to make progress on the Doha Round is leading to the creation of alternative international rules on trade and investment, such as those put forward by the U.S. and EU in TPP and TTIP. The desire to refocus global rulemaking back into the WTO where all countries have a vote could open up new possibilities for multilateral progress.

[3] Gary Hufbauer and Jeffery Schott, “Payoff from the World Trade Agenda 2013”, Report to the ICC Research Foundation, April 2013

[4] Hoekman, Bernard and Will Martin. 2012. Reducing Distortions in International Commodity Markets: An Agenda for Multilateral Cooperation. Policy Research Working Paper No. 5928 (January). Washington: The World Bank

[5] Remarks By President Obama at Georgetown University, Washington D.C, June 25, 2013

[6] Susan C. Schwab, “After Doha, Why the Negotiations are Doomed and What We Should Do About It”, Foreign Affairs May/June 2011, p. 109

[7] Conceptual Note By Brazil to the WTO Working Group on Trade, Debt and Finance, “The Relationship Between Exchange Rates and International Trade”, WT/WGTDF/W/68, 5 November 2012

[8] Letter from US Senators to Treasury Secretary Lew and U.S. Trade Representative Froman, Dated September 23, 2013